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Why manufacturer incentives and the lack of ‘real-time’ pricing may cost you car sales

By Philip Nothard

One of the motor retail sector’s biggest challenges is the complexity of its range of offerings. Have you ever stopped to consider how the proliferation of new models and derivatives has changed your day-to-day processes?

In the past 10 years, more than 5,000 derivatives have been added across the main brands, not including fuel variant duplication or minor ‘special editions’.

     
 
 

Philip Nothard joined CAP in 2010 as its retail and consumer price editor, analysing pricing data and interpreting strategic market trends. In his role, he is able to apply two decades of experience gained in franchised motor retailers, which culminated in running dealerships for the likes of European Motor Holdings, Lythgoe Motor Group and Arnold Clark.

 
 

As the chart shows, the number of derivatives available would have been inconceivable 10 years ago. BMW has grown its offering by 433%, and Volvo by 265%. Reductions – such as by Renault and Alfa Romeo – are a rarity. This growth, coupled with a yearly rise of 10% in new registrations, means life in the showroom is ever more complex.

One area in which this becomes an issue is keeping abreast of incentives from manufacturers. This is a major task for managers and sales teams and when you consider that more dealerships these days are dual-franchised, the level of product knowledge required is huge.

In the days when I ran a dealership, the world was considerably simpler. We would review which vehicles attracted what incentive, which was the most enticing for the consumer and as a ‘spot’ vehicle. Then we just had to ensure the sales team knew which incentives were relevant to the remainder of the range.

The problem now is the increased potential to misapply the incentives or miss some altogether. It’s not unusual for a dealer to have to phone a customer to say there is a further thousand pounds of deposit contribution or similar support that he hadn’t been aware of. This is particularly problematic at the start of a quarter, when all the incentive arrangements may change at the same time.

I came across an excellent example of this recently with Mercedes-Benz. Certain models/derivatives in the C-Class range attract a £3,000 dealer contribution on a PCP with low rate finance of 4.7%. On the E-Class, you have a dealer contribution of £2,750 and a 4.5% finance rate on a PCP. That may only be a 0.2% and £250 difference between the E-Class and C-Class, but getting it wrong may cost you the deal. The variance in dealer contributions can be vast between models and derivatives, with nil on the A-Class, going up to as much as £11,210 on the CLS.

This is not unique to Mercedes-Benz and offering a range of incentives mixing deposit assistance, dealer contributions and finance support clearly works. But there is a cost to the dealer in assigning the support terms correctly.

During my research for this article, everyone I spoke to had experience of wondering why a competitor was so different on the terms they were offering. This won and lost deals for the people involved and the reasons given were that the losers had not been aware quickly enough that support terms were available for a particular car.

These make for good stories in the pub, but sales managers have enough to wrestle with when working out the price points for sales. Incorrectly applying incentive terms, overrunning with them or simply failing to apply them will damage margins at best and lose sales at worst.

The relationship between new cars and the used market is inescapable, as the issues of oversupply in recent years have proven. One area of sensitivity for manufacturers in particular is the relationship between new car discounting and used values, particularly on late-plate stock.

More efficient management of new car incentives can help, by making the relationship transparent for franchised dealers. Currently, used car managers in many dealerships can be unaware of the detail of new car incentives. This can lead to unnecessary ‘knee-jerk’ discounting of used stock simply because the used car side of the business is aware that there are ‘offers’ on certain new models. But these offers may be combinations of incentives, designed to move one derivative, and will not necessarily involve undue price pressure on any used stock.

Better communication of new car incentives enables franchised dealers to manage screen prices – and therefore margins – more intelligently. It is better to price used stock in full knowledge of the ‘competition’ from new cars than chaotically erring on the side of caution and discounting unnecessarily, as we so often see at present.

 

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